Groupon announced its first-ever quarterly profit this week, but its stock is down more than 25% on the year. The business model for Groupon — and competitor LivingSocial, among others — is flawed in so many ways. For starters, merchants that take part in a daily deal give up as much as 75% of each daily deal sale to participate. This creates a high participation cost for the merchant, which does not know whether the daily deal will result in an incremental lift in overall sales from new customers or repeat business. Groupon and LivingSocial have yet to report the … Continue Reading →

As a consumer I have always been skeptical of some of the intangible cardholder benefits associated with certain credit cards. Typical among these benefits are purchase protection plans, car rental loss and damage insurance, lost/stolen baggage insurance, and delayed trip insurance. I never perceived a real value in these services and thought I would never have the occasion to use any of the benefits. I also typically do not like paying annual membership fees on credit cards that offer these benefits. All of that changed recently. I booked a flight to Italy with my American Express card, which provides trip … Continue Reading →

Banks test fees on products all the time. Bank of America is the most recent bank to receive backlash for testing and considering changing fees on checking accounts. Subsequently, there was a public uproar from the suggestion that they may increase fees. And to that I say, stop the madness. I’m tired of the complaints about checking account fees. Like everyone else, I am also tired of the bad economy, of government regulation, of banks getting battered by Congress, of so-called “consumer advocate groups,” and of consumer complaints. Sure, the banks took advantage of the marketplace during the boom economy, … Continue Reading →

Senator Robert Menendez is at it again. Just when we thought that banking regulation would go on hiatus for the holiday season, the senator has introduced The Prepaid Card Consumer Protection Act. The primary aspects of the bill center on consumer disclosure of all fees, and require Reg E compliance on lost or stolen cards. A core component of the legislation is the elimination of some fees and the imposition of limits on other fees. We would all agree that consumer disclosure is the right thing to do for the industry, but further revenue erosion on general-purpose reloadable (GPR) cards … Continue Reading →

The need for interchange regulation, hotly debated by the U.S. Congress for more than a year, ended in the passage of the Durbin Amendment. Not surprisingly, this resulted in U.S. banks implementing “replacement” revenue streams in the form of fees. Price-fixing an industry has never worked and does not work now. The Durbin Amendment’s attempt to do something right for consumers has become detrimental to them. What does it all mean? Consumers will pay more for demand deposit relationships and the debit cards that access them. Some consumers will switch to credit cards. Those who can no longer afford checking … Continue Reading →

Big banks have always managed their consumers’ accounts separately, almost forgetting that consumers have multiple product relationships. Payment products are managed separately from checking relationships, which are separate from mortgage relationships, which are separate from investment relationships. These different forms of customer business have traditionally been run as discrete profit-and-loss centers. Profit margins have now been cut on debit cards, and banks are raising fees on the cards and checking accounts; the rise in checking and debit card fees will further alienate customers at a time when consumer trust in banks is at an all-time low. For the sake of … Continue Reading →

This is my fourth Durbin Amendment blog posting since April 2011. Since the Federal Reserve Bank posted the rules, my fury over government price fixing has reached an all-time high. The concurrent political wrangling to sort through the U.S. budget and looming deficit has only compounded my fury. It is clear that elected officials are merely posturing to get re-elected or gain majority power in congress. This is just more evidence that no elected official is truly capable of taking the higher road when it comes to the state of the U.S. economy or our society as a whole. Case … Continue Reading →

The Federal Reserve Bank (FRB) has finally and reluctantly released compliance rules for the Durbin Amendment. It would be difficult to declare anyone a winner in this long-protracted battle; merchants want to eliminate interchange, banks cling on to the old ways of making money, and the once-revered Visa and MasterCard have been stripped of many of their powers. Gone are exclusivity and transaction-routing dominance.  Visa and MasterCard are left with shrinking margins on core transaction volume. Worst off is the consumer. Merchant cost savings will be kept by the merchants, banks will increase the cost of checking relationships, and the … Continue Reading →

Over the last several years, financial institutions have done a grand job of destroying trust and creating angst among the consumers they serve and the public at large. I rarely meet a person today that does not have a story about how badly they have been treated by a bank or how hard it is to borrow money. No one is shedding a tear for the banks. On the heels of the financial collapse has been an onslaught of financial reform from powerful legislators such as Chris Dodd, Barney Frank, and Dick Durbin. Who is all this reform really protecting? … Continue Reading →

The banking industry is fully aware of the Durbin Amendment and the reduction of interchange revenue on debit cards. One residual effect is the fallout of traditional rewards programs linked to debit cards. Over the past two weeks, one large bank after another has announced the discontinuance of these rewards programs. While this may appear to present a significant loss of benefits to banks and consumers, a new business model is gaining traction and will quickly change the market for banks and issuers: merchant-funded rewards programs. These programs are being promoted by a new set of emerging providers and companies. … Continue Reading →